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Susan Cunningham - What it Takes to be Successful in Exploration

AAPG Distinguished Lecture Series, 2018-19 Season

AAPG Distinguished Lecture Series, 2018-19 Season


A Distinguished Lecture talk given by Susan Cunningham during 2018-19 AAPG DL Season. Click here for abstract.

Full Transcript

Hello, my name is Susan Cunningham. Some of you will know me. Some of you don't. I'm going to talk about myself in a little bit. But I wanted to, first of all, start by thanking the AAPG for giving me this opportunity to share some of the knowledge, some of the things that I've been learning through my 35 years in the oil and gas industry. I'm at that stage where I've just learned so much. And I really want to help you to-- and see if there aren't some nuggets that I can share that will be helpful for you as your career continues.

So a little bit about me-- who am I? For those who don't know me, I'm the middle child of five. I was an alien, an immigrant to the United States from Canada. So I had some fun with my boys. I have two young boys. Well, they're not young anymore. But I have two boys. And when they were young, I would show their friends and them and tell them your mother's an alien. And that, you can imagine, got all sorts of great response.

Anyway, so I've been in the United States for quite a long time, most of my career. I've had the real fortune to work in projects and companies around the world. So there's a couple of pictures that show me in East Africa, where I did some fieldwork fairly early on in my career, many pounds lighter.

I've also had the opportunity to interact with leaders of countries, connect with people, and lead, which I love. You're going to hear more about what I've learned about leadership. And now, of course, I'm really enjoying mentoring and helping people out to share again what I've learned. And of course, I'm only talking about the good stuff. There's bad stuff in there. But I'm not going to talk about it.

So why be in this oil and gas industry? I always start at the top. That's just the way I work. I want to start with the largest perspective first, and then I go down into the specifics. So for me, it's always been about-- the oil and gas industry has been an awesome industry and will continue to be an awesome industry because it provides reliable, affordable energy to people around the world.

It makes a difference. It's improved infant mortality, life expectancy, our health. It's all impacted by what's made possible from having reliable and affordable energy. So with that rooting, it's also fun.

And I want to talk about what I've learned over my time and my career about exploration specifically. But this is applicable. These are principles that I've learned that have made the biggest difference when I had my time with Noble Energy. I was there for 16 years and learned a lot from what I'd had before but really was able to contribute in a different way when I was at Noble in exploration as well as in innovation, many operations, and many other things. But the point is these principles built and learned through my 35 years make a difference in innovation.

Innovation is more important, I think, now than ever. The pace of innovation is accelerating. And so being able to understand how we can harness that and purposely create an opportunity for us to be receptive to innovation so that our companies, ourselves, our societies, our communities can really benefit and thrive.

So I really wanted to start with-- I've got seven different criteria that I talk about that I've learned are critical for success. And I'm going to take a little pieces and tell some stories about different aspects of them. So we're going to delve deeply into each one. But you can see, it's about technical excellence. It's about having the right processes so that you can quantify what your possibility is.

It's about having a relentless focus on learning and really training your own intuition. And I'll get into that. It's about having an amazing group of smart people and getting the best out of them and hearing what they have to offer and therefore the sum of the parts being much better, much greater than the individuals.

It's about having a deep understanding of how you actually can make money, how you can make something profitable so that it provides the opportunity and the wealth and the energy and the products for society. It's about having alignment with your leaders, with the CEO, with the board, so that everybody understands what we're about. And then making sure that we have the right leadership and that we make really good decisions knowing that as human beings, we're not perfect. We're fallible. But we're learning more about how our brains work, which we can use to make better decisions.

So I'm going to start really simply, excellent technical work. I think most of you who are watching are students or recently have been students. Certainly, as geoscientists, we started with a technical training. And so having that core technical training is really, really important, having excellent technical work. But what I've learned through my career is that-- just a couple of thoughts-- and that is, our maps and the way we look at data are kind of from the top down. And we look down.

But I have put myself in the opposite, because it's all based on physics. And it's all based on what happens with a molecule. So I always imagine myself as the molecule. I am now in the basin and the source rock. Or I'm the water that's coming in from the surface or coming in from other areas with pressure changes. I'm that molecule of gas.

Whatever it is, it's basic physics. I'm wanting to go up if I'm a hydrocarbon. And so I think of myself in the bottom, in the source rock, to start with that petroleum system and thinking, OK, I'm the molecule. And I'm looking up. Where am I going to go? Think-- just try it. It really can give you some different insights.

And another thing with our technical work is multiple hypotheses. This is really proven to be important because we-- even though we're scientists and we like to think we know, it's really important to realize that we actually don't know and that it's our best interpretation, our best assessment, of how the data comes together is how we create hypotheses.

But it's really important, since we don't know, that we actually understand that and accept it and therefore look at multiple hypotheses with the data. It's true to it. Don't get too anchored on one. And that's a hard thing to do. Our brains really want to do that.

And I'm going to tell a story about after I go through these criteria of where we actually-- a prospect that I was working on, that my teams that were working on, this could have really bogged us down. And we could've missed the largest gas discovery in that year.

So the other thing is the process is to quantify risk. Because we need to understand what the size and the possibility is as well as the risk of it being right or wrong with these multiple hypotheses. Most people are pretty familiar with probabilistic estimations, the Rose approach. And so I just wanted to work through a couple of the pros and cons about these different things that I've learned through my career.

When it first started, it was all about gut feel. And it was your experience. And of course, what ended up happening is that frequently over time, gut feel is you're more likely to destroy value than create value than if you're learning, unless you're really learning from everything that you say. And you think about it. But most people-- most companies didn't. And so the Rose approach said, OK, let's really be objective. And people were creating their own processes to be objective in our scientific estimations and our assessments of risk and opportunity.

And so that's really, really helped. It means that your probability of being successful in a risked manner is you're going to be more consistent and that you also have some lows, and you'll have some highs. But if you're rigorously learning and you're having that objective approach, that's going to serve you well, both the companies and as a person.

But then one of the things I learned-- and I'm going to digress with a story-- was that maybe the best is if we can get experienced people to actually-- they've trained their intuition-- and I'm going to talk about that-- and now contribute how they feel about something, so taking the best of that gut feel, that experience, as well as that objective process.

So the story is that I was at Noble Energy. And we would look back at our exploration discoveries and failures. And we would look at them and be very rigorous about our learnings. We had done the analysis. We were bringing everybody in. What did we learn? What do we want to do differently? And we did it on an annual basis. And we did it on a three-year basis.

And when we were looking at the three wet years of wells, I made a comment that there was a dry hole that I really didn't like. And I said, I really didn't like that prospect. Now, all the objective processes said it should be drilled. It fit in with the criteria. It fit in with the portfolio of what we are trying to achieve. And so we drill it.

And I had not expressed my dislike, because we tend to dismiss these things, like it's not objective. It's the scientific process. This should be drilled. But when I reflected, I realized I didn't like it. And I made that comment. And some of the other people said, you know, I didn't like this one or that. I said, wait. Let's just hold off. Let's just look back, write down all the prospects, the wells that were drilled, the successes and the failures. Obviously, this is on the failures.

Before we reinvent history, let's look back and say, which of these wells-- were there any wells in here that each of us individually didn't like? And so we did. And we found there were a couple. And so we really talked about it and ended up realizing that what we had done is-- we did some research on all of this-- is we had trained intuition. We'd seen so many wells, the prediction and the results, that we really had been learning and training through this rigorous look-back process about our brains, about what were the right ingredients and such that it had become emotional. And that's how our brains work.

And so what we ended up doing was saying, OK, we're now going to not just look at the objective processes. For our most experienced people that have trained their intuition and their learnings, we're now going to look back and say, how does it feel?

So that relentless training and training your intuition, there's a couple of other things that I've learned that are helpful. And that is that we actually have biases, cognitive biases, that impact our decision making. And one of the most important, actually, is that we like the status quo. You can see this play out in so many different aspects. But I'll focus on what we're talking about here. But it plays out in society. And we do it. I know I can tell when I do it.

We think that the way things are now are the best, usually. Or least that's the way it's supposed to be. So if you're going to be creative and if you're going to change and if you're going to see possibilities, you actually have to recognize that that can hold you back. And therefore purposely knowing that, how do I open myself up to other possibilities? So this is one of the things in training your intuition that is worthwhile to look at-- learn from that. When did you open up? When did you see some other possibilities?

We also were very fearful of failure. And so that if there's something new, new thinking, new possibilities that come into a prospect and opportunity, that we see the downside more than we see the upside. That's the natural place to go. And so again, being aware, just stepping back and saying, OK, what is the possibility? And having each other help each other out with that is also part of the process and the learning part.

So going a bit deeper into that, I want to talk a little bit about creativity. One of the main things is that multi-discipline teams-- we all know this is a complicated business. And finding prospects, developing them, this is not just about exploration. It works for development of discoveries. It works for everything, negotiations, so many different aspects. Bringing different thinking in is really important to being successful and, let's face it, being better than everybody else-- the company that you're in, being the best.

So I want to talk a little bit about what that takes. There were some studies that were done in looking at musical Broadway, Broadway productions in New York. And this is all from a book, by the way, by Jonah Lehrer called Imagine. If you're really interested in where this goes, I really encourage you to read it. And these studies that were done looked at these plays, these musicals from the 1800s through to the '70s or '80s, I believe. And I may have some of the details wrong. But the basics are here.

And they looked at what was the success of the-- why were some more successful than others? And one of the things they saw was that the group that were making up-- that were involved in this production-- it's multi-discipline, just like in oil and gas. It's complex. It's all focused on figuring something out and trying to be successful on it. There's risk to it. There's lots of different aspects. That if a group came together for the first time, they didn't have much success at all.

And what they found out is, as they studied this, another group that had been very successful, that had worked together, and then they would think, this is the incumbent group. This is the successful. They've got a formula. Let's do it again. I've been through this myself in my career, this thinking. And they found that fairly soon, that group didn't have the kind of success, either.

And what they learned is that the interactions that people have, it's this density of connections and these interpersonal social intimacy became really important. In a group that hadn't worked together, they didn't have it. It was too chaotic. In a group that had worked together, they had lots of social intimacy and they worked hard together. They knew how to do that. But they didn't have any new thinking. It became that status quo.

And so bringing in new people, new perspectives, people that had come in, therefore, with different experiences, because that's what we're all made up of, brought in-- and then knowing how to listen and integrate that thinking is to always be improving, that was the Goldilocks zone, having some new people in, some new experiences and backgrounds, and then listening and building on it and involving it.

So that interaction quotient or Q, as Jonah Lehrer likes to call it, becomes really something to think about, that having 15%, 30%-- those are my numbers from just my experience in looking at it. But it's more than 10% and definitely less than 50% is where you want to have the right mix of processes that work and new thinking.

So I'm also now going to delve a little bit deeper into creativity from another perspective. And this is with those thoughts in mind about Q. There were some studies that were done on looking at cities. And what was their creativity? How did that change over time? And these were cities all around the world through time. And what they found was that creativity as measured by patents did change as a city grew. And it grew by a ratio of 1.15.

So per capita growth of creativity, you're getting more out of each person as the city grows to 1.15. And the reason for this, of course, is that it's dense. People are interacting. You've got some of that Q coming in. You're getting different thinking from people that you don't normally work with in terms of your business that aren't focused on your expertise, and what you know. And so ideas germinate and grow.

And so as the city grows, that creativity grows. That denseness happens, that connectivity, that other thinking. Now, of course, not a big surprise, when they look at companies-- when the companies grow, the creativity goes down. It actually becomes negative. 0.9 is the ratio of creativity per capita as it grows. And this is because it's a controlled environment. There's a hierarchy. There's functions that work together, walls. So you just don't get this mix of different thinking coming in. You're all focused on one thing.

So then the challenge is, OK, how do you actually create some chaos and bring some of that thinking in to a company so that it can constantly reinvent itself? Companies have a lifespan, average lifespan of 45 years plus or minus, whereas cities, they live a long time. They constantly reinvent themselves. And that's because they have access to all this creative juice that's out there.

Pixar has done a lot of work on looking at this in terms of creating an environment and all the attributes so that you have continual creativity and innovation and reinvention. So if you're interested in that, I also recommend you read that book because Jonah talks about it. So that's the creative piece.

Now, creativity, as I mentioned, interacts with everything. But you gotta understand the financials, the regulatory, the environment you're in, the culture that you're in. To really be successful, you take all that creative juice from finding the prospects, bringing it all in. You've got to put it in the business environment. And then you have-- it's like those musical productions. And then you have your successful outcome, and add value.

So I'm going to just talk briefly from a very simple place. It's the value equation that you can see. Because we're talking about risk and reward, it's all about minimizing, understanding, or managing the risk that is inherent as well as minimizing the failure costs and maximizing that potential reward. So the reward, when it comes to exploration, is about running room-- I'm going to talk about Tamar and offshore Israel-- having running room so that if you're successful with one prospect and you have a discovery, what can you take -- learnings -- and now apply it so that you can have more.

Of course, bringing in more Q, more other ideas in the process and learning. It's about-- your costs, of course, are seismic and drilling on the exploration side and then all the development costs that it takes to actually get money to flow, meaning the hydrocarbons and then the money to flow. And then minimizing those failures, because you will have some failures along the way. And so you want to make sure you're working at that.

So looking at how can I be creative? How can I bring these different things into all aspects of the business? There's a lot that you could do in that regard.

Now, one of the things that we've learned about innovation and creativity in the oil and gas industry-- what's happened since 2014 when the price crashed. Unconventionals had taken off. Lots of money poured in. Lots of capital came into the system. More companies actually were created. And actually, financial returns, believe it or not, were worse. The higher the price, the worse the financial, once it gets to a certain point. Returns can be when it gets this hot, as it was prior to 2014.

Everything crashed. And you can see the break-even costs. It's something that we started to talk about, the diagram on the right. They came down by year. As you can see, they've improved from 2014 and on down. And then we've gotten more nuanced. And this is, of course-- the break-even price is at what price can you actually make money with the systems and the costs that you have? So it's a moment in time. And so that's why the break-even price, of course, reduces by year as we got more inventive and more innovative and really focused on making it profitable at a lower price.

And then, of course, we got more nuanced in looking at understanding that unconventionals-- there are different geology in those basins and with the current technologies and where we see things going, that depending on the price, you're going to be able to produce different parts of it. So it became more nuanced as we learned. This is all about innovation that gets us there.

Costs have come down. Another thing I've learned as I've been in my career-- I've seen several ups and downs and crashes. And I've learned on the offshore side of things. I've been through enough of these cycles to recognize it takes four to five years before the innovation and the costs and everything, the changing the models of how we think improves. And it takes about a five-year lag. And the onshore unconventional, that actually became about six months to a year that people-- and you could see those prices coming down, break-even prices.

So now we're about five years after everything kind of crashed. And now the offshore has become very competitive with the onshore opportunities. And so we're in this great competitive space. A lot of innovation has happened. And now what can we do to continue and go on from there?

Also in the whole financial side of things, another couple of things that I've learned that usually isn't talked about-- we tend to think that the supply demand is what it's all about that drives price. Couple of other things to think about. Actually, that graph on the left shows there's actually a direct inverse correlation of oil price with the strength of the US dollar. So if you see the US dollar going up or down in strength, that's going to tell you something about where prices are likely to go, as well as interest rates.

One of the reasons why we had so much money and the prices rose and so many companies were involved was also because we had low interest rates, so there was a lot of capital available of people wanting to create more value and get some more higher return from the onshore shorter cycle opportunities that they saw in North America.

And then I'm going to move on now to the strategic alignment and leadership. Now, this is really important, because being in a situation, leading your group, being in a team, being in a company that has alignment of where you're going is also important. And that challenge of meeting demand-- this is a graph that you can see by Woodmack, of what the growing demand is, so demand for hydrocarbons, certainly energy. And it will be hydrocarbons in the shorter term. And who knows how that's going to work out?

But right now, we are going to need more hydrocarbons. There's been less capital invested over the last four years. And so now we really need to bring those creative juices, create big goals, and challenge the status quo about how we can meet the demand.

Tamar, Leviathan, offshore Israel-- there are so many lessons. I'm going to use this as an example of these different criteria, these different aspects about successful exploration and being successful and ultimately, therefore, making money and growing the opportunity for people is it took several different aspects. First of all, was setting a big goal. That goal-- I've talked about it before. Some of you have probably heard about it. But it was quite a long time ago. I really wanted to grow exploration at Noble. And I wanted to set a big goal to see what we could do. Because if you're going to do anything, you might as well do it big and bold or why bother.

So I decided to set a big goal for the company to find a billion barrels of oil equivalent in five years net to the company. And at the time, we were finding 35 million plus or minus, so this was huge. It scared the hell out of me. I did not know how we were going to do it. But that was the point. Because by doing something big and bold and setting it out there, you've got to get people's thinking involved in it. You've got to listen. You've got to bring involvement in and help each other figure out and change the status quo thinking and see the possibilities and not just go into the downside and those cognitive biases. So many aspects that goal gets in alignment on something.

In the end, we actually found two billion. But that's not what the story is about. But I'm going to talk about offshore Israel because we would never have had the success that we had there, Israel would not have cleaner air there if we had not set up this goal and decided to do things differently.

And so we saw an opportunity in Israel. And it was one prospect called Tamar. Now, Tamar was a prospect that had been figured out by British Gas, BG, and Delek, an Israeli partner that they had. They couldn't get anybody to farm in. BG wanted to get out for a variety of reasons. And Delek wanted to get it drilled. They went and asked a lot of people, a lot of different companies. Nobody was interested in it for a variety of reasons.

And then Noble Energy, some people that worked for me, saw the opportunity. Now, they decided-- initially, when they looked at it, were already in Israel with one Tcf field-- that it was highly unlikely to be as good as it looked. And this is kind of that status quo fear of the unknown, fear that it's going to go negative. And so they basically said, no, this is a volcano. This is not-- remember, I talked about multiple hypotheses. They thought this bump was likely to be a volcano, not an anticline.

And so they were concerned that it wouldn't be-- it was going to be too risky. And it wasn't going to be successful. So with some trained intuition of some other people that had seen lots of things around the world through their careers, the opportunity came to some others, and they saw it. I saw it and said, oh, my gosh. This is something we've really got to take a hard look at.

So knowing that we've got to bring different thinking in and not knowing it was Q at the time, I brought in some people that had worked on it, knew the area, and then some others that had not worked in Israel, weren't familiar with the thinking in this area at all and weren't involved prior, and got them together to assess what the possibility was and what the risk and the reward going through an objective process would be.

So we had to overcome some of these cognitive biases of the status quo and confirmation, because there was a lot of concern still that, OK, this could be an anticline, multiple hypotheses. But it's high risk. It couldn't possibly be a low-risk prospect. Lot of stories behind of all of those. We're not going to talk about it right now. But in the end, bringing different thinking in, challenging our thinking, realizing that we tend to put higher risk on the possibility than it was, because of this anchoring, we finally came to a place that said, OK, this is something we want to participate in.

Now, we also wanted to have running room, because that big goal-- if there were more things like that in the area, we also knew we wanted to get more acreage before we drilled it so that we could see if there was something more from there. So the leadership and the decision making of how we approached it strategically became very important.

What ended up happening was Tamar was drilled. It was a discovery in 2009, 10 Tcf, the largest gas field in the world that year. And then the next year, we drilled one of those follow-up running room prospects, which was called Leviathan, which is 22 Tcf and I think still has the possibility potentially to be bigger. But that's just me. That's not the official number. And that was the largest gas field in a decade. 12 exploration appraisal wells were drilled, no dry holes, and 40 Tcf of natural gas were found.

This has transformed the country of Israel. It will continue not only their air to be cleaner because they were using coal and diesel fuel for their power plants, but it's also-- they're exporting. They just got approval to export-- Noble did-- to Egypt and to Jordan. There's been exporting. So it's now, for the first time, a totally different-- they have a totally different way of thinking about themselves as a country. So again, wow, the things that we do and the impact it has that we have no idea.

Tamar started flowing four years after discovery in 2013. It currently supplies 60% of Israel's power generation. And it's clean. It also uses the longest subsea tieback in the world, 90 miles. These are all examples of innovative thinking to get to these points. So it's not just about exploration. It's also in development.

Leviathan is on target to be-- from everything I've read-- is on target to start production at the end of 2019 with the ability to flow 1.2 Bcf a day. Tamar is flowing 900 MMcf per day. And it will be able to double that fairly soon if they do another upgrade.

So what did this take? It took innovative thinking. Some more lessons from Tamar and from Leviathan-- at the time, before we decided to drill it, we didn't know, as I mentioned, what the structure was. Was it an anticline? Was it a carbonate buildup? Was it a volcano? We didn't have enough data to know. We had seismic-- not as good as you'll see there, but we had seismic that's gotten better.

The reservoir-- there was no reservoir that had been penetrated in that area. So we didn't know what that was. We brought in analogs from the Gulf of Mexico. The petroleum system-- we had no idea what the petroleum system was. We had to think about the molecules. Where could the gas be coming from? And you know, that looking up. So the country really didn't have a regulatory system. They weren't used to this sort of thing at all. So we had to be innovative and think about how do we interact with this very different culture and this very different setup.

And we made some mistakes. And we made some great things along the way-- we, being Noble Energy. I'm talking like when I was there. And then of course the development plan and bringing it to market, all of this took great thinking, great people committed to doing something and making a difference and being innovative.

So in conclusion, I just want to kind of bring it back. Those different ingredients-- and this is true for innovation, being open to innovation in your companies. So I don't want it to be just about exploration. Geoscientists that are watching this, you are creative. This is the juice that makes a difference for possibility. Now, others are creative too, obviously. But there's something about the geosciences. We delve in. We parlay in risk and possibility and opportunity.

And so being receptive, creating that, being receptive to it, understanding our cognitive biases, bringing these different attributes of different things that you can think about in terms of how do we purposely build creativity, how you continually reinvent, how do you train your intuition, how do you interact with people. This is what connecting and working with really smart people-- this is what it takes, that whole brain. If you don't have it-- and none of us really do. Certainly, we could bring in aspects. But bring a team that brings it together and make a difference and provide energy for the world. And what could be better than that?

So I'd like to thank, again, AAPG for this great opportunity to share some of the things that I've learned. And I hope you've gotten a few insights out of them, some things to think about. And I'd like to thank Noble Energy, even though I don't work for them anymore. I've used public data. So there's no issues in that at all. But I had great opportunities working with lovely, wonderful people. And I want to thank them for that opportunity so I could go and share what I've learned.

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